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Author: jmls Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 3916  
Subject: Cash Flow (FAQ v. 0.2) Date: 5/24/2000 1:32 AM
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Dear y'all,

This is the "Cash Flow Statement" part of the "Reading Financial
Statements FAQ".  As always, any suggestions are appreciated.  Hope y'all
find it helpful.

Best,

Lleweilun Smith

Q.  What is the format of the "cash flow" statement?

A.  The cash flow statement, or the Consolidated Statement of Cash Flows,
is the "cash accounting" analog of the Income Statement.  It has three
main sections:

Operating Activities                       The "look" of the cash flow
                                             statement is a bit different
Income from continuing operations            than the income statement and
                                             is broken up into three parts.
Depreciation and amortization                The first, cash from operations,
                                             starts from the income statement
Write-offs and impairments                   and adds back non-cash charges.
                                             Also it adds back changes in net
Changes in working capital:                  working capital (inventory,
                                             accounts payable/receivable)
Inventory                                    as well as changes in deferred
                                             taxes and other non-cash items.
Deferred taxes

Accounts Payable/Receivable

Net cash provided by operating activities

Investing Activities                       "Investments" include not only
                                             purchases or sales of marketable
Purchases of plant, property and equipment   securities but also of plant,
                                             property and equipment (PP&E).
Sales of plant, property and equipment       For example the purchase of a
                                             new location for a store would
Purchases of marketable securities           go here.  Some companies require
                                             much investment and maintenance
Sales of marketable securities               of fixed assets, others do not.
                                             Peering at this section, or
Other investing activities                   cash from operations - cash from
                                             investing (the "Rule Maker"
                                             definition of "free cash flow")
Net cash used in investing activities        may help distinguish cash
                                             generation ability that the
                                             income statement does not.  Note  
                                             also that a few select companies
                                             actually generate cash from
                                             investments.

Financing Activities                       This section talks about
                                             raising and repaying debt.  Also
Repayments of debt                           included here are payments of
                                             dividends and share repurchases
Issuance of debt                             or issuances.  Note "interest"
                                             is taken out of income.
Share repurchases

Shares issued

Dividends paid

Net cash provided by financing activities    Possibly there would be an  
                                             item for currency exchange.

Net increase/decrease in cash and
cash equivalents

Cash and cash equivalents at beginning of
year

Cash and cash equivalents at end of year

Supplemental cash flow information        Often there is an extra item
                                             which accounts for taxes and
Cash paid for                                interest.

income taxes

interest                                               


Note that in itself, negative free cash flow isn't a bad thing.  Fast
growing companies often consume cash to build infrastructure, new stores
etc.  Cash flow tends to be less smooth than income.  Special note should
be taken if cash flow and income amounts regularly are very different.                                    

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